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  • Emerging Markets Debt Daily

    EM Growth - Greener Shoots Appearing

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    October 01, 2019

    Emerging markets activity surveys showed some improvement in September. Thailand’s inflation moved further away from the target, supporting calls for another rate cut.

    The latest emerging markets activity surveys paint a slightly more encouraging picture. The number of countries still in the contraction zone is significant, but there are signs of improvements. This is especially true in Asia, where most countries posted higher manufacturing PMIs (Purchasing Managers Indices) in September. Turkey showed big improvement as well (jumping up to 50.0)—reflecting fiscal pump-priming and rate cuts. The region that still looks wobbly is Central Europe. The horror stories of the month are Russia (unexpected drop to 46.3) and South Africa (shocking collapse to 41.6)—both drew attention to the state of their respective pro-growth reform agendas.

    The latest inflation prints provide a perfect excuse for Thailand’s central bank to extend the easing cycle. Yearly inflation undershot consensus by a wide margin in September, moderating to mere 0.32%—drifting even further away from the 1-4% target range. Given that the real gross domestic product (GDP) growth is also slowing meaningfully, a 25bps policy rate cut in Q4 would be completely justified. 

    My Asian trip continues. I am in sunny Manila today, getting a very strong message that the stimulus dial shifted to fiscal and that public sector investments will be the main driver. Low inflation will help to sustain consumption, but might not necessarily lead to additional policy rate cuts. The Philippine central bank now targets lower bank reserve requirements in order to improve financial intermediation and boost lending. The political dimension remains hugely important—for the approval of pro-growth tax reform, the passage of the 2020 budget and relations with China. Off to Indonesia this evening, where I will do my best to avoid student riots and tear gas. 


    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

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